Fuel Price Hike May Trigger Inflation Surge in North Sumatra

The increase in the price of Pertamax fuel, effective from Wednesday (10/6), is considered to have the potential to trigger a spike in the inflation rate in North Sumatra of up to 0.31 per cent. This is because the increase in private transport costs could drive up production input costs and will suppress the purchasing power of Pertamax users.

Economist at the Islamic University of North Sumatra (UISU) Gunawan Benjamin revealed that the Pertamax price increase, which nearly touches the Rp4,000 mark, specifically Rp3,950 per litre, will directly exert strong pressure on the regional inflation rate, especially in the transport sector.

“The Pertamax price increase will trigger a higher rate of inflationary pressure considering that the weighting of inflation formation from Pertamax is greater compared to the previous increase in prices of other non-subsidised fuels,” he said on Wednesday (10/6).

According to Gunawan, the significant weighting of this commodity is directly reflected by the massive number of users on the ground, dominated by the middle class. The Pertamax price increase could also encourage tariff adjustments on several modes of public transport in the near future.

This impact is increasingly felt considering that the use of subsidised Pertalite fuel is now strictly regulated by the government. In addition to hitting the transport sector, Gunawan noted that this cost surge will also essentially push up prices of food commodities.

“Given that the increase in private transport costs has the potential to drive up production input costs. This will suppress the purchasing power of Pertamax users. With an increase reaching Rp3,950 per litre, this will greatly determine the amount of future public spending,” he explained.

Another impact that needs to be strictly monitored is the potential migration of consumers from Pertamax to Pertalite. Although the government restricts certain engine class criteria from using Pertalite, the reality on the ground still opens a gap for this shift, especially for motorcycle owners.

“Pertalite is widely sold in retail. The potential for a shift among motorcycle users to Pertalite is very likely,” said Gunawan.

However, the room for migration for four-wheeled vehicles or private cars is considered much more limited. This is because the beneficiary criteria are more strictly regulated.

Private car owners are also considered unlikely to circumvent this by buying retail Pertalite, as it carries too great a risk, besides considerations of engine performance which keep them using Pertamax.

Facing these high energy consumption costs, Gunawan sees another possibility, namely that vehicle users will switch to cars or motorbikes with a small cylinder capacity (CC) in order to enjoy Pertalite.

However, he cautioned that this consideration is also fraught with risk because government policy could change at any time. On the other hand, the Pertamax price increase is also considered to have sparked the alternative use of electric vehicles (EV) to resurface among the people of North Sumatra.